Not Consoles, But Mobile Gaming Is The Way Ahead For Nintendo

Nintendo shares are having a dream run thanks partly to the success of the Switch. However, analysts at Jefferies believe that it will be mobile gaming that will help the Japanese company bring in more revenue than consoles.

Mobile gaming is the future

According to analyst Atul Goyal, most investors are focusing on the Switch console when they really should care more about Nintendo’s mobile gaming efforts. Goyal thinks that Nintendo’s mobile gaming strategy is evolving and will continue to do so over the next two to three years.

Several investors Goyal met with believe that Nintendo is not very keen on ramping up its efforts in mobile games. However, Nintendo management deferred from the general perception and is more committed to mobile gaming, the analyst believes.

In a note to investors, Goyal noted that Super Mario Run failed because of the premium price model. Thereafter, Nintendo released Fire Emblem based on the freemium model, and the game was a success in the first month. However, users exhausted all the content in the first month, the analyst adds. Nintendo has, however, learned from its mistakes, and as it works on its next title, it wants to make sure that the content is extensive enough at the start.

“We believe Nintendo’s mobile games will go from strength to strength,” Goyal said. “It will be a huge mistake to write off Nintendo’s IP. That is the real value. That is the treasure trove.”

Nintendo Switch to help boost earnings

In another note earlier this month, Goyal was upbeat on the Nintendo Switch and said he believed the newest console would play a substantial role in Nintendo’s earnings.

“Switch has turned out to be a stealth hit and is positioned to drive Wii-type [the company’s last successful console] software sales and profits cycle,” the analyst said.

He stated that the Switch appeals to core gamers, unlike the casual gamer base garnered by the Wii; therefore, the Switch will boost the company’s earnings. According to Goyal, the company’s operating profit will increase to 189 billion yen in fiscal 2018 and 423 billion yen in fiscal 2019, compared to the previous estimate of 29 billion yen in the current fiscal year.

In the area of mobile gaming, the analyst noted previously that smaller gaming competitors such as Square Enix, Konami and Bandai Namco, which have limited IP appeal, have seen a growth in their gaming businesses from scratch to $1 billion per year in sales during recent years. Thus, the analyst believes that IP monetization will offer structural strength, adding that it had been more than six months since Nintendo’s first mobile game.

Analyst David Gibson of Macquarie Capital estimates that Nintendo will sell 14.5 million consoles by the end of the current fiscal year. However, fear of the iPhone 8 capturing the company’s supply chain and Nintendo not getting enough components for the Switch could be a drawback for the console.

Nintendo shares were up on Monday following the launch of the new Super NES Classic system. This year so far, the stock is up 60.46%.

Author: Aman JainAman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com